Reg. § 1.367(d)-1T Transfers of intangible property to foreign corporations (temporary).
(a) Purpose and scope This section provides rules under section concerning transfers of intangible property by U.S. persons to foreign corporations pursuant to section or . of this section specifies the transfers that are subject to section and the rules of this section, while paragraph (c) provides rules concerning the consequences of such a transfer. In general, the U.S. transferor will be treated as receiving annual payments contingent on productivity or use of the transferred property, over the useful life of the property (regardless of whether such payments are in fact made by the transferee). , , and of this section provide rules for cases in which there is a later direct or indirect disposition of the intangible property transferred. In general, deemed annual license payments will continue if a transfer is made to a related person, while gain must be recognized immediately if the transfer is to an unrelated person. of this section provides several special rules, including a rule allowing appropriate adjustments where deemed payments under section are not in fact received by the U.S. transferor of the intangible property, and a rule providing for a limited election to treat certain transfers of intangible property as sales at fair market value (in lieu of applying the general useful life-contingent payment rule). In addition, of this section provides rules coordinating the application of section with other relevant Code sections. of this section defines the term related person for purposes of this section. Finally, of this section provides the effective date of this section. For rules concerning transfers of intangible property pursuant to section , see . For purposes of determining whether a U.S. person has made a transfer of intangible property that is subject to the rules of section , the rules of shall apply.
(b) [Reserved]
(c) Deemed payments upon transfer of intangible property to foreign corporation
(1) In general If a U.S. person transfers intangible property that is subject to section and the rules of this section to a foreign corporation in an exchange described in section or , then such person shall be treated as having transferred that property in exchange for annual payments contingent on the productivity or use of the property. Such person shall, over the useful life of the property, annually include in gross income an amount that represents an appropriate arms-length charge for the use of the property. The appropriate charge shall be determined in accordance with the provisions of section and regulations thereunder. See . The amount of the deemed payment thus calculated shall be reduced by any royalty or other periodic payment made or accrued by the transferee to an unrelated person during that taxable year for the right to use the intangible property. Amounts so included in the transferor's income shall be treated as ordinary income from sources within the United States. For purposes of computing estimated tax payments, deemed payments under this shall be treated as received by the transferor on the last day of its taxable year.
(2) Required adjustments The following adjustments shall be made with respect to a U.S. person's recognition of a deemed payment for the use of intangible property under this :
(i) For purposes of chapter 1 of the Code, the earnings and profits of the transferee foreign corporation shall be reduced by the amount of such deemed payment; and
(ii) For further guidance, see .
(3) [Reserved]
(4) Blocked income No deemed payment included in a taxpayer's income under of this section shall be treated as deferrable income for purposes of applying rules relating to blocked foreign income. See Revenue Ruling 74-351, 1974-2 C.B. 144.
(d) Subsequent transfer of stock of transferee foreign corporation to unrelated person
(1) Treatment as sale of intangible property If a U.S. person transfers intangible property that is subject to section and the rules of this section to a foreign corporation in an exchange described in section or , and within the useful life of the intangible property that U.S. transferor subsequently disposes of the stock of the transferee foreign corporation to a person that is not a related person (within the meaning of of this section), then the U.S. transferor shall be treated as having simultaneously sold the intangible property to the person acquiring the stock of the transferee foreign corporation. The U.S. transferor shall be required to recognize gain (but not loss) from sources within the United States in an amount equal to the difference between the fair market value of the transferred intangible property on the date of the subsequent disposition and the U.S. transferor's former adjusted basis in that property (determined as of the original transfer). If the U.S. transferor's disposition of the stock of the transferee foreign corporation is subject to U.S. tax other than by reason of this , then the amount of gain otherwise required to be recognized with respect to the stock of the transferee foreign corporation shall be reduced by the amount of gain recognized with respect to the intangible property pursuant to this .
(2) Required adjustments If a U.S. person disposes of the stock of a transferee foreign corporation, and under of this section is treated as having simultaneously sold intangible property, then, for purposes of computing basis and earnings and profits, the person acquiring the stock of the transferee foreign corporation shall be deemed to have purchased that property at fair market value and to have immediately thereafter contributed it to the transferee foreign corporation in a transaction not covered by section . Therefore, for purposes of chapter 1 of the Code—
(i) The transferee foreign corporation's basis in the intangible property will be equal to its fair market value (as calculated for purposes of determining the gain required to be recognized by the U.S. transferor);
(ii) The acquiring person's basis in the stock of the transferee foreign corporation shall be determined as if no portion of the consideration given by the acquiring person for the stock is attributable to the intangible property; and
(iii) The earnings and profits of the transferee foreign corporation will not be affected by the transfer of its stock or the deemed transfer to it of the intangible property.
(e) Subsequent transfer of stock of transferee foreign corporation to related person
(1) Transfer to related U.S. person treated as disposition of intangible property If a U.S. person transfers intangible property that is subject to section and the rules of this section to a foreign corporation in an exchange described in section or and, within the useful life of the transferred intangible property, that U.S. transferor subsequently transfers the stock of the transferee foreign corporation to U.S. persons that are related to the transferor within the meaning of of this section, then the following rules shall apply:
(i) Each such related U.S. person shall be treated as having received (with the stock of the transferee foreign corporation) a right to receive a proportionate share of the contingent annual payments that would otherwise be deemed to be received by the U.S. transferor under of this section.
(ii) Each such related U.S. person shall, over the useful life of the property, annually include in gross income a proportionate share of the amount that would have been included in the income of the U.S. transferor pursuant to of this section. Such amounts shall be treated as ordinary income from sources within the United States.
(iii) The amount of income required to be recognized by the U.S. transferor pursuant to the rule of of this section shall be reduced to the amount determined in accordance with the following formula:
(d)(1) amount × (100% − (e) percentage)
For purposes of the above formula, the (d)(1) amount is the income that would otherwise be required to be recognized by the transferor corporation pursuant to of this section, and the (e) percentage is the percentage of the transferor corporation's total deemed rights to receive contingent annual payments under of this section that is deemed to be transferred to related U.S. persons under the rules of this .
(iv) The rules of and of this section shall be reapplied in the case of any later transfer of the stock of the transferee foreign corporation by a related U.S. person that received such stock in a transfer that was subject to the rules of this . For purposes of reapplying the rules of paragraphs (d) and (e), each such related U.S. person shall be treated as a U.S. transferor of intangible property to the transferee foreign corporation (to the extent of the interest attributed to such person pursuant to subdivision (i) of this ).
(2) Required adjustments If a U.S. person transfers stock of a transferee foreign corporation to a U.S. related person in a transaction that is subject to the rules of of this section, the following adjustments shall be made:
(i) For purposes of chapter 1 of the Code, the earnings and profits of the transferee foreign corporation shall be reduced by the amount of any payment deemed to be received by a related U.S. person under of this section;
(ii) For further guidance, see ;
(iii) For purposes of reapplying the rules of and of this section, if the related U.S. person is deemed to have received a right to contingent annual payments for the use of intangible property, then the U.S. related person shall be deemed to have held a proportionate share of the property with a basis equal to a proportionate share of the U.S. transferor's adjusted basis plus the gain, if any, recognized by the U.S. transferor on the earlier transfer of the stock to the U.S. related person, and then to have transferred that proportionate share of the property to the foreign corporation in a transfer subject to section ; and
(iv) If the U.S. transferor is itself required to recognize gain upon the transfer by reason of the operation of and of this section (because stock of the transferee foreign corporation is also transferred to unrelated persons), then those unrelated persons shall be deemed to have purchased a proportionate share of the transferred intangible property at fair market value and immediately contributed that property to the transferee foreign corporation, consistent with the general rule of of this section concerning transfers of stock to unrelated persons. Therefore, for purposes of chapter 1 of the Code—
(A) Each unrelated person's basis in the stock of the transferee foreign corporation shall be increased to the extent of the gain recognized by the U.S. transferor upon the deemed purchase of intangible property by that person; and
(B) The transferee foreign corporation will receive an increase in its basis in the transferred intangible property equal to the fair market value of that portion of the intangible property deemed to be contributed to the transferee foreign corporation by unrelated persons (as calculated for purposes of determining the gain required to be recognized by the U.S. transferor).
(3) Transfer to related foreign person not treated as disposition of intangible property If a U.S. person transfers intangible property that is subject to section and the rules of this section to a foreign corporation in an exchange described in section or , and within the useful life of the transferred intangible property, that U.S. transferor subsequently transfers any of the stock of the transferee foreign corporation to one or more foreign persons that are related to the transferor within the meaning of of this section, then the U.S. transferor shall continue to include in its income the deemed payments described in of this section in the same manner as if the subsequent transfer of stock had not occurred. The rule of this shall not apply with respect to the subsequent transfer by the U.S. person of any of the remaining stock to any related U.S. person or unrelated person.
(4) Proportionate share For purposes of this , any “proportionate share” shall be determined by reference to the fair market value (at the time of the original transfer) of the stock of the transferee foreign corporation that was transferred by the U.S. transferor and the fair market value of all of the stock of the transferee foreign corporation originally received by the U.S. transferor.
(f) Subsequent disposition of transferred intangible property by transferee foreign corporation
(1) In general If a U.S. person transfers intangible property that is subject to section and the rules of this section to a foreign corporation in an exchange described in section or , and within the useful life of the intangible property that transferee foreign corporation subsequently disposes of the intangible property to an unrelated person, then—
(i) The U.S. transferor of the intangible property (or any person treated as such pursuant to of this section) shall be required to recognize gain from U.S. sources (but not loss) in an amount equal to the difference between the fair market value of the transferred intangible property on the date of the subsequent disposition and the U.S. transferor's former adjusted basis in that property (determined as of the original transfer); and
(ii) The U.S. transferor shall be required to recognize a deemed payment under of this section for that part of its taxable year that the intangible property was held by the transferee foreign corporation and thereafter shall not be required to recognize any further deemed payments under or of this section with respect to the transferred intangible property disposed of by the transferee foreign corporation.
(2) Required adjustments For further guidance, see through .
(3)-(6) [Reserved]
(g) Special rules
(1) Establishment of accounts receivable
(i) In general If a U.S. person is required to recognize income under the provisions of , , or of this section, and the amount deemed to be received is not actually paid by the transferee foreign corporation, then the U.S. person may establish an account receivable from the transferee foreign corporation equal to the amount deemed paid that was not actually paid. A separate account receivable must be established for each taxable year in which payments deemed to be received are not actually made. Payments received from the transferee foreign corporation must be designated as payments upon a particular account and must be deducted from that account. Accounts receivable under this may be established and paid without further U.S. income tax consequences to the U.S. transferor or the transferee foreign corporation. No interest shall be paid or accrued on an account receivable created under this , nor shall any bad debt deduction be allowed under section with respect to any failure to receive payment on an account.
(ii) Unpaid receivable treated as contribution to capital If any portion of an account receivable established under this remains unpaid as of the last day of the third taxable year following the taxable year to which the account relates, then—
(A) Such portion shall be deemed to have been paid on that date; and
(B) The U.S. person shall be deemed to have contributed an equivalent amount to the capital of the foreign corporation, and the U.S. person's basis in the stock of the foreign corporation shall, therefore, be increased by that amount.
(2) Election to treat transfer as sale A U.S. person that transfers intangible property to a foreign corporation in a transaction subject to section may elect to recognize income in accordance with the rules of this , if—
(i) [Reserved]
(ii) The transfer of the intangible property is either legally required by the government of the country in which the transferee corporation is organized as a condition of doing business in that country, or compelled by a genuine threat of immediate expropriation by the foreign government; or
(iii)
(A) The U.S. person transferred the intangible property to the foreign corporation within three months of the organization of that corporation and as part of the original plan of capitalization of that corporation;
(B) Immediately after the transfer, the U.S. person owns at least 40 percent but not more than 60 percent of the total voting power and total value of the stock of the transferee foreign corporation;
(C) Immediately after the transfer, at least 40 percent of the total voting power and total value of the stock of the transferee foreign corporation is owned by foreign persons unrelated to the U.S. person;
(D) Intangible property constitutes at least 50 percent of the fair market value of the property transferred to the foreign corporation by the U.S. transferor; and
(E) [Reserved]
(F) A person that makes the election under this shall not be subject to the provisions of through of this section. Such person shall instead recognize in the year of the transfer ordinary income from sources within the United States in an amount equal to the difference between the fair market value of the intangible property transferred and its adjusted basis. A U.S. person shall make an election under this by notifying the Internal Revenue Service of the election in accordance with the requirements of section and regulations thereunder, and subsequently including the appropriate amounts in gross income in a timely filed tax return for the year of the transfer.
(3) [Reserved]
(4) Coordination with section 482
(i) In general Section and the rules of this section shall not apply in the case of an actual sale or license of intangible property by a U.S. person to a foreign corporation. If an adjustment under section is required with respect to an actual sale or license of intangible property, then section and the rules of this section shall not apply with respect to the required adjustment. If a U.S. person transfers intangible property to a related foreign corporation without consideration, or in exchange for stock or securities of the transferee in a transaction described in sections or , no sale or license subject to adjustment under section will be deemed to have occurred. Instead, the U.S. person shall be treated as having made a transfer of the intangible property that is subject to section .
(ii) Sham licenses and sales For purposes of of this section, a purported sale or license of intangible property may be disregarded, and treated as a transfer subject to section and the rules of this section, if—
(A) The purported sale or license is made to a foreign corporation in which the transferor holds (or is acquiring) an interest; and
(B) The terms of the purported sale or license differ so greatly from the economic substance of the transaction or the terms that would obtain between unrelated persons that the purported sale or license is a sham.
The terms of a purported sale or license, for purposes of applying the rule of this , shall be determined by reference not only to the nominal terms of the agreement but also to the actual practice of the parties under that agreement. A sale or license of intangible property shall not be disregarded under this solely because other property of an integrated business is simultaneously transferred to the foreign corporation by the U.S. transferor in a transaction described in section or any statutory or regulatory exception to section .
(5) Determination of fair market value For purposes of determining the gain required to be recognized immediately under , , or of this section, the fair market value of transferred property shall be the single payment arm's-length price that would be paid for the property by an unrelated purchaser determined in accordance with the principles of section and regulations thereunder. The allocation of a portion of the purchase price to intangible property agreed to by the parties to the transaction shall not necessarily be controlling for this purpose.
(6) Anti-abuse rule If a U.S. person—
(i) Transfers intangible property to a domestic corporation with a principal purpose of avoiding the effect of section and the rules of this section; and
(ii) Thereafter transfers the stock of that domestic corporation to a related foreign corporation,
then solely for purposes of section that U.S. person shall be treated as having transferred the intangible property directly to the foreign corporation. A U.S. person shall be presumed to have transferred intangible property for a principal purpose of avoiding the effect of section if the property is transferred to the domestic corporation less than two years prior to the transfer of the stock of that domestic corporation to a foreign corporation. The presumption created by the previous sentence may be rebutted by clear evidence that the subsequent transfer of the stock of the domestic transferee corporation was not contemplated at the time the intangible property was transferred to that corporation and that avoidance of section and the rules of this section was not a principal purpose of the transaction. A transfer may have more than one principal purpose.
(h) Related person For purposes of this section, persons are considered to be related if—
(1) They are partners or partnerships described in section 707(b)(1) of the Code; or
(2) They are related within the meaning of section (b), (c), and (f) of the Code, except that—
(i) “10 percent or more” shall be substituted for “more than 50 percent” each place it appears; and
(ii) For further guidance, see .
(i) Effective date Except as specifically provided to the contrary elsewhere in this section, this section applies to transfers occurring after December 31, 1984.
[T.D. 8087, 51 FR 17953, May 16, 1986, as amended by T.D. 8770, 63 FR 33568, June 19, 1998; T.D. 9803, 81 FR 91030, Dec. 16, 2016; T.D. 9994, 89 FR 82169, Oct. 10, 2024]